With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Northrop Grumman (NYSE:NOC). The defense contractor has faced pressure ever since the government started contemplating budget cuts to military spending, and as sequestration looms, the threat level is on the rise once more. How will the company respond? Let's take an early look at what's been happening with Northrop Grumman over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Northrop Grumman

Analyst EPS Estimate


Change from Year-Ago EPS


Revenue Estimate

$6.33 billion

Change from Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo Finance.

Can Northrop Grumman fight back?
Northrop Grumman has convinced analysts that its prospects are relatively stable, at least for the foreseeable future. Earnings-per-share estimates have only budged by a couple pennies in the past three months, but shareholders haven't been as secure, with the stock falling about 3% since late October.

The uncertainties of the federal budget continue to hit Northrop hard. The company has already started laying workers off based just on the expectation of budget cuts, and if they actually come to pass, then further job losses could result. Rivals are also cutting back on staffing, with Lockheed Martin (NYSE:LMT) cutting its management count by 25% and expecting another 10,000 job losses if sequestration actually occurs. Boeing (NYSE:BA) announced in November that it would restructure its defense division to reduce management jobs in the segment by 30%, and Northrop may need to take similarly drastic measures to cut costs.

Of more concern is the fact that other companies have managed to cut back enough to see modest profit gains even as revenue has fallen. Northrop, on the other hand, saw year-over-year earnings per share fall in its October 2012 report, raising questions about whether the company is more susceptible to adverse industry conditions than its rivals.

In this quarter's report, pay the most attention to signs that Northrop may be beating or falling short of its peers. Last week, General Dynamics (NYSE:GD) initially shocked investors with a massive GAAP loss, combined with a 12% decline in sales. With Northrop sharing General Dynamics' substantial reliance on their information systems and technology businesses for revenue, General Dynamics' report could point to weakness for Northrop as well. If Northrop can outperform, on the other hand, it may be a sign that its attempts to shore up its operations are finally working.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.